Economic Dimensions of health care

The financial and human resources devoted to health represent an important input to the
system and contribute to determining the level of production of health care. Globally, the main
sources of financing for health services are: government, third party payers through social or
private health insurance, households and international aid and charities. The resources devoted
to health care are generated through national income and taxation, contribution to insurance
funds and out-of-pocket payments. In analysing the trends in health care financing from public
resources, it is found that in wealthier countries, an important share of total health
expenditures comes from public funds. This situation is partly explained by the high coverage by
social health insurance in industrial economies and by the level of taxation used for cross
subsidy in the social field, including health, education and social welfare. In many developing
countries, public resources allocated for health development shrank as a consequence of
budgetary reductions and structural adjustment policies. Cost sharing in health systems was
promoted, leading to a decrease in the use of publicly provided services, particularly for the
poor and vulnerable segments of the population.
Reforms in health care financing, while mobilizing limited additional resources, have had
negative impacts on the health status of populations. The implementation of structural
adjustment policies and programmes has led to cuts in public spending on health, particularly in
developing and indebted countries. In some sub-Saharan African countries, the implementation
of user fees led to reductions in accessibility to basic health services. In Nigeria [6], it was found
that user fees introduced in maternity hospitals contributed to a three-fold increase in
complicated deliveries between 1983 and 1988 in one teaching hospital and to a 56% increase
in maternal mortality. This result was explained by lower levels of prenatal care and early
discharge of new mothers because of inability to pay fees. In Mexico, the sharp decrease in the
Ministry of Health budget from 4.7% of the total government budget in 1980 to 2.7% in 1989,
and the concomitant decrease in insurance coverage because of unemployment (15 million or
13% of the population left without jobs) and inability of poor patients to afford private care,
resulted in a net increase in malnutrition, which was responsible for 12% of deaths of children
under 5 years and indirectly responsible for 6% of all deaths.
Funding through third party payers (social and private insurance) is also increasing worldwide
and is considered to be among the contributing factors to cost escalation in industrialized
countries because of thabuse of services that are subsidized or perceived to be free at the point
of delivery. Social health insurance through compulsory enrolment is considered by many
policymakers in developing countries as being among the best alternatives for generating
additional resources for the health system while protecting equity and is, therefore, high on the
agenda of health sector reforms. The burden of paying privately and out of pocket for health
care services has risen in most countries. In developing countries, the general trend in health
care financing shows a decreasing role for government expenditure while household out-of-
pocket expenditure on health is on the increase. This raises concerns with regard to equity in
access to health care. The amount of resources spent on health varies between countries and is
usually correlated with wealth. Industrialized countries spend more on health than developing
countries and economists have been keen to assess what might constitute optimal spending on
health. However, they have not reached a convincing conclusion since many factors intervene
in allocating resources for health. In developing countries it is difficult to get a measure of the
real resources devoted to health as separate line items in the national income accounts are not
easy to obtain. However, WHO has set 5% of GOP as the minimum amount needed to
implement health for all strategies. Many countries, including the least developed countries, of
the Eastern Mediterranean Region have not yet reached the target of 5% and need to generate
resources for underfunded health systems. Roughly one-seventh of least developed countries
spend less than I % of their gross domestic product (GOP) on health and almost half spend
between 1 % and 3%. In many least developed countries in Africa per capita health expenditure
does not exceed US$ 2. In developing countries in general, almost half spend between I % and
3%, just over one-third spend from 3% to 5% and the remainder spend over 5%. In
industrialized market economies, health expenditure ranges from 4.6% of gross national
product (GNP) to 13%. Globally speaking, the levels of real resources required to maintain the
health gains achieved or to improve them further have increased dramatically. This increase is
explained by growing population expectations, the spread and development of biomedical
technology, ageing populations and by the emergence of new diseases. Slow or declining
economic growth, reductions in real income per head, reductions in public spending and impact
of structural adjustment policies and programmes all place enormous pressures on the health
sector, particularly in the least developed and developing countries.
Role of the private sector in service delivery and financing
In most countries, the private sector plays a growing role in both the financing and delivery of
health care, and constitutes an important and necessary partner for health development.
The global changes related to the move towards decentralization and greater community
participation and towards a market economy have also contributed to the promotion of
privatization in health systems, while the role of government has become mainly of a regulatory
nature. The household expenditures and utilization surveys carried out in many developing
countries show that the share of private providers in health services delivery is growing and
outpacing the public providers, particularly for outpatient services. Household contribution to
health expenditures is also on the increase through direct out-of-pocket payment for privately
provided care or through community financing or other cost-sharing schemes. In many
developing countries, the shift towards private providers is partly explained by the low quality
of services delivered by underfunded public facilities as well as by the aggressive policies of
active privatization. The development of the private sector has usually not been planned to
meet national health goals and to supplement the public sector. This has led, in many cases, to
duplication of investments and services which has contributed to inefficiencies and to cost
escalation in health systems. Moreover, the unplanned growth of the private sector has
negative implications with regard to equity in access to health care and to quality of services as
ministries of health in many developing countries are not well equipped to play an active role in
standard setting and in managing the public-private mix. Private health facilities are usually
established in urban areas which contributes to a widening of the gap between rural and urban
citizens with respect to health care. The importance of developing regulatory functions within
ministries of health is considered to be among the prerequisites to success in implementation
of health sector reforms. The growth of the private sector has also been accompanied in most
countries by the development and strengthening of professional associations and unions, which
play an important role in policy analysis and formulation and in all social and political debates
related to the health sector. The growing role of the private sector in services delivery has had
impact on human resources development also as many private institutions have become
involved in the training of health professionals, which was formerly, at least for developing
countries, solely the responsibility of ministries of health and higher education. This
development, in addition to its consequences for quality of health care, will undoubtedly
complicate matters with regard to already ineffective human resources policies
Human resources for health
Human resources consume between 60% and 80% of the resources devoted to health care, yet
many health systems still pay only limited attention to the importance of human resources
policies. In most countries, important efforts have been made in recent years to produce a
workforce that would better match the rapid expansion of health systems, both in terms of
quality and of quantity. In developing countries, the past two decades have witnessed the
implementation of human resource development policies, which have led to the production,
and even export, of large numbers of health professionals. Human resources development
experts in ministries of health are mainly concerned with the production and distribution of
staff, leaving the higher profile policy development issues to more senior colleagues and to
influential politicians. This has led to a separation between broader health policies and the
more specific human resource interventions required to implement them.In many countries,
the situation with regard to human resources for health is characterized by a lack of balance
between the various professions, by discrepancies between and within regions with respect to
the availability of health professionals and by low levels of performance. Such a situation has a
negative impact, not only on health systems by not producing the optimal level of human
resources, but also on the whole economy by wasting scarce financial resources which could
have been used by other development sectors. It is important to move away from the usual
rhetoric-that human resources are the most valuable component of health systems-to the
reality-that the workforce in many developing countries is underpaid, poorly motivated and
increasingly dissatisfied.
Planning and management of health systems
In many developing countries, the policy development and strategic planning functions are
weak. This has resulted in a lack of clear policy and strategic orientations and in incapacity to
translate political commitment, such as to health for all or an essential drugs list, into concrete
plans and programmes. Priorities in health systems are not set according to needs or using
economic criteria, such as cost-effectiveness analysis. In developing countries, the weaknesses
of national health information systems, the limited use of epidemiology to assess the national
burden of disease, the fragmented nature of data on expenditures and costs and the limited
levels of community involvement, represent important constraints on improving priority setting
in health systems. Resources allocated to health systems are often not properly used, leading
to administrative and technical inefficiencies and to inequities in access to health care. In the
1993 World Development Report [5], several examples were given of the misallocation of public
resources, particularly in developing countries, through spending on health interventions with
low cost-effectiveness while highly cost-effective programmes, such as health protection and
promotion, were underfunded.
Despite the evidence of numerous studies showing that primary health care strategies are cost-
effective and lead to improved equity, more resources are allocated to curative and hospital-
oriented interventions in many countries. In most developing countries, hospitals and curative
care consume the largest share of public budgets. The monitoring and evaluation exercises of
health-for-all strategies showed that only half of the least developed countries devote between
20% and 50% of national health expenditure to local health care. A few allocate less than 20%
to the local level, as low as 1.3% in one case. However, one-third devote over 50% of
expenditure to primary health care at a local level, catering to a predominantly rural
population. In the Eastern Mediterranean Region there is an increasing trend to spend on the
local level in many countries, even though more is still spent on hospitals and curative care.
Very often, resource allocation in the health sector is driven not by economic rationality, but by
other considerations, such as the desire for visibility and the influence of political and social
groups. The allocation of resources for health development should be determined by national
health policies and strategies, approaches to priority setting and the managerial process in
general. Ineffective health system management and inappropriate selection of medical
procedures often lead to wastage.
Economic aspects of health system outcomes
Health care, as one of the determinants of health, has an impact on health status as shown in
changes in morbidity and mortality indicators and in quality of life. Improvement of the health
status of the population also has well established positive consequences for economic growth,
at both the microeconomic and macroeconomic levels. The most direct effect of improved
health is increase in productivity and reduction in absenteeism. Poor health, in the form of
disability, has negative consequences for labour productivity, and reduces income by as much
as 12%, according to some studies. This is a particularly important factor in developing
countries, where a significant proportion of the workforce is involved in agriculture and other
forms of manual labour. Malnutrition during childhood can have long-lasting effects on human
capacity. It is also well established that health improvements have greatest effect on the most
vulnerable segments of the population-the poorest and the least educated. Improvements in
survival rates and life expectancy have both direct and indirect effects on a country's economic
growth. As life expectancy increases, individuals tend to save more in order to ensure their
ability to consume after retirement; this increases the levels of investment in the country.
Similarly, improvements in survival rates increase the return on investment in human capital,
such as education. Increased investment in education also increases per capita GDP growth.
The effect of health on education can also be measured, through levels of school participation
and learning rates. Health improvements can also indirectly promote economic growth through
their impact on demography. Improvements in child survival rates provide a catalyst for
demographic transition. As mortality and fertility rates fall, the resultant changes in the age
structure eventually lead to a temporary drop in the dependency rates. The effects of health on
economic performance can also be evaluated in terms of the costs of ill health to individuals
and to societies . Diseases such as malaria and HIV / AIDS have important direct costs and also
significant indirect costs that arise from absenteeism caused by morbidity, reduced human
capital through loss of school days and reduction in school performance, and reduction in the
efficiency of land use. Moreover, the prevalence of endemic diseases can negatively affect
foreign investment and can prevent the development of a suitable environment for economic
growth. The prevention and control of such diseases can play an important role in economic
development.